Glossary
of Insurance Terms
SALVAGE
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Damaged property an insurer takes over to reduce
its loss after paying a claim. Insurers receive salvage rights over
property on which they have paid claims, such as badly-damaged cars.
Insurers that paid claims on cargoes lost at sea now have the right
to recover sunken treasures. Salvage charges are the costs associated
with recovering that property.
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SCHEDULE
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A list of individual
items or groups of items that are covered under one policy or a listing
of specific benefits, charges, credits, assets or other defined items.
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SECONDARY MARKET
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Market for previously issued and outstanding
securities.
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SECURITIES AND EXCHANGE COMMISSION / SEC
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The organization
that oversees publicly-held insurance companies. Those companies make
periodic financial disclosures to the SEC, including an annual financial
statement (or 10K), and a quarterly financial statement (or 10-Q). Companies
must also disclose any material events and other information about their
stock.
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SECURITIES OUTSTANDING
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Stock held by shareholders.
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SECURITIZATION OF INSURANCE RISK
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Using the
capital markets to expand and diversify the assumption of insurance
risk. The issuance of bonds or notes to third-party investors
directly or indirectly by an insurance or reinsurance company
or a pooling entity as a means of raising money to cover risks.
(See Catastrophe bonds)
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SELF-INSURANCE
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The concept of assuming
a financial risk oneself, instead of paying an insurance company to
take it on. Every policyholder is a self-insurer in terms of paying
a deductible and co-payments. Large firms often self-insure frequent,
small losses such as damage to their fleet of vehicles or minor workplace
injuries. However, to protect injured employees state laws set out requirements
for the assumption of workers compensation programs. Self-insurance
also refers to employers who assume all or part of the responsibility
for paying the health insurance claims of their employees. Firms that
self insure for health claims are exempt from state insurance laws mandating
the illnesses that group health insurers must cover.
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SEVERITY
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Size of a loss.
One of the criteria used in calculating premiums rates.
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SEWER BACK-UP COVERAGE
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An optional part
of homeowners insurance that covers sewers.
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SHARED MARKET
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See
Residual market
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SOFT MARKET
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An environment
where insurance is plentiful and sold at a lower cost, also known
as a buyers’ market. (See Property/casualty insurance cycle)
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SOLVENCY
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Insurance companies’ ability to pay the claims
of policyholders. Regulations to promote solvency include minimum capital
and surplus requirements, statutory accounting conventions, limits to
insurance company investment and corporate activities, financial ratio
tests, and financial data disclosure.
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SPREAD OF RISK
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The selling
of insurance in multiple areas to multiple policyholders to minimize
the danger that all policyholders will have losses at the same
time. Companies are more likely to insure perils that offer a
good spread of risk. Flood insurance is an example of a poor spread
of risk because the people most likely to buy it are the people
close to rivers and other bodies of water that flood. (See
Adverse selection)
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STACKING
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Practice that increases the money available
to pay auto liability claims. In states where this practice is permitted
by law, courts may allow policyholders who have several cars insured
under a single policy, or multiple vehicles insured under different
policies, to add up the limit of liability available for each vehicle.
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STATUTORY ACCOUNTING PRINCIPLES / SAP
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More conservative
standards than under GAAP accounting rules, they are imposed by
state laws that emphasize the present solvency of insurance companies.
SAP helps ensure that the company will have sufficient funds readily
available to meet all anticipated insurance obligations by recognizing
liabilities earlier or at a higher value than GAAP and assets
later or at a lower value. For example, SAP requires that selling
expenses be recorded immediately rather than amortized over the
life of the policy. (See GAAP accounting; Admitted assets)
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STOCK INSURANCE COMPANY
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An insurance company
owned by its stockholders who share in profits through earnings distributions
and increases in stock value.
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STRUCTURED SETTLEMENT
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Legal agreement
to pay a designated person, usually someone who has been injured,
a specified sum of money in periodic payments, usually for his
or her lifetime, instead of in a single lump sum payment. (See
Annuity)
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SUBROGATION
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The legal process
by which an insurance company, after paying a loss, seeks to recover
the amount of the loss from another party who is legally liable for
it.
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SUPERFUND
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A federal law enacted
in 1980 to initiate cleanup of the nation’s abandoned hazardous waste
dump sites and to respond to accidents that release hazardous substances
into the environment. The law is officially called the Comprehensive
Environmental Response, Compensation, and Liability Act.
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SURETY BOND
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A contract guaranteeing
the performance of a specific obligation. Simply put, it is a three-party
agreement under which one party, the surety company, answers to a second
party, the owner, creditor or “obligee,” for a third party’s debts,
default or nonperformance. Contractors are often required to purchase
surety bonds if they are working on public projects. The surety company
becomes responsible for carrying out the work or paying for the loss
up to the bond “penalty” if the contractor fails to perform.
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SURPLUS
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The remainder
after an insurer’s liabilities are subtracted from its assets.
The financial cushion that protects policyholders in case of unexpectedly
high claims. (See Capital;
Risk-based capital)
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SURPLUS LINES
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Property/casualty insurance coverage that isn’t
available from insurers licensed in the state, called admitted companies,
and must be purchased from a non-admitted carrier. Examples include
risks of an unusual nature that require greater flexibility in policy
terms and conditions than exist in standard forms or where the highest
rates allowed by state regulators are considered inadequate by admitted
companies. Laws governing surplus lines vary by state.
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SWAPS
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The simultaneous
buying, selling or exchange of one security for another among
investors to change maturities in a bond portfolio, for example,
or because investment goals have changed.
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